PPF’s, The Economic Problem and Specialisation Flashcards
What is a positive statement
Factual and can be tested to determine if true or false
What is a normative statement
Based on values and personal judgement. It cannot be tested
What is the basic economic problem
There are infinite wants and needs but finite rescources
What is opportunity cost
The cost of the next best alternative to the choice being made
What are economic goods
Resources that are scarce
What are free goods
Resources that are not scarce
What are the factors of production
Land
Labour
Capital
Entrepreneurship
What is a Production Possibility Frontier (PPF)
A curve showing all the maximum possible combinations of two goods that a country can produce using all its resources in a time period
What are consumer goods
Goods ordinary people buy
What are capital goods
Machinery and buildings bought buy firms and gov to produce other goods and services
What is the PPF downwards sloping
To produce more of one good involves producing less of the other
Why does the PPF bow outwards
As a country produces more of one good it becomes specialised in the production of that good and it becomes more difficult to go back to producing the other good
When is the PPF a straight line
When opportunity costs are constant
What causes the PPF to shift
-Investment in capital goods
-Immigration
-Discovery of raw materials
-Technological innovation
-Training / education
What is the division of labour
When the production process is broken down unto individual tasks and each worker is allocated a specific one
What is specialisation
When factors of production are focused on producing one particular good or service or one part of the production process
Who described the division of labour
Adam Smith
Benefits of specialisation and division of labour (2)
-increase labour productivity
-workers can specialise in tasks they are best suited for
Problems with specialisation and division of labour
-workers can become demotivated and less productive
-over-specialisation
Without money what is required for trade
A double coincidence of wants
What are the 4 functions of money
-medium of exchange
-measure of value
-store of value
-standard of deferred payment
